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“In analyzing a trend on the charts, the most useful tool is the trendline. One of the biggest mistakes made by amateurs and professionals alike is inconsistently defining and drawing the trendline. To be useful, the trendline must accurately reflect the definition of the trend. The method I have devised is very simple and very consistent. It fits both the definition of a trend and the inferences drawn from Dow Theory pertaining to the elements of a change in trend:

“1. Select the period of consideration: the long term (months to years), the intermediate term (weeks to months), or short term (days to weeks). It can also be a smaller segment of any of these where a change of slope of the trendline is apparent.

“2. For an uptrend within the period of consideration, draw a line from the lowest low, up and to the highest minor low point preceding the highest high so that the line does not pass through prices in between the two points. Extend the line upwards past the highest high point. It is possible that the line will go through prices past the highest minor high point. In fact, this is one indication of a change in trend, as will be demonstrated shortly.

“3. For a downtrend within the period of consideration, draw a line from the highest high point to the lowest minor high point preceding the lowest low so that the line does not pass through prices in between the two high prices. Extend the line past the lowest high point downward.

“While this method is very simple, it is extremely consistent and very accurate. The slope of this trendline is a close approximation to the slope you would get by doing a linear regression analysis on the price data over the same time period. Unlike other methods, it prevents you from drawing a trendline to suit your purposes — it prevents you from imposing your wish onto the trendline. It also provides the tools to graphically determine when a change of trend has occurred.”